Indonesia needs more incentives to seize the power of solar

Indonesia solar Jeda Villa Bali Flickr
Indonesia needs incentives to develop its current trickle of solar projects. Image: Jeda Villa Bali Flickr.

Indonesia needs to provide more incentives for investment in solar power if it intends to grow its share of the renewable energy mix from a mere 20 megawatts at present, said participants at a workshop on solar power development held in Jakarta on Monday.

In a place known for its sun-drenched beaches, and frequent energy shortages, solar power has so far made up a miniscule portion of the power supply, which is dominated by coal, oil and natural gas.

Neighbouring Malaysia, whose population is one-eighth the size of Indonesia’s, has 15MW of installed solar capacity by comparison, while India has 450MW and is well on track to hit 1,000MW by 2013 as part of a National Solar Mission aimed at reducing the use of fossil fuels in its power grid.

Lower prices for the photovoltaic panels used to generate solar power and rising power costs amid a severe energy deficit have boosted solar development there, as has government support.

Indonesia too has voiced support for renewable energy. As part of a 2009 presidential directive, the country aims to increase the amount of power it gets from renewable sources from five to 17 per cent by 2025.

But long-running subsidies for fossil fuels and the continued dominance of the oil and gas industry in a country that until 2008 was a member of Organization of Petroleum Exporting Countries still pose major challenges.

“The main barrier is subsidies,” said Jan Michael Knaack a project manager at the German Solar Industry Association who attended Monday’s workshop along with government officials and around 100 people from the private sector.

Indonesia has been locked in fierce debate in recent months over how to stem fuel subsidies, which threaten to push its budget deficit above a government mandated limit of three per cent of gross domestic product. In March, Parliament struck down a government bid to raise the price of subsidized fuel by 33 per cent, saying it would only agree to price hikes if the price of oil exceeded budget assumptions by 15 per cent for six continuous months.

Attempts to cut subsidies are often met with protests and opposition from populist politicians who say higher fuel prices will have an adverse impact on the country’s poorest. With the latest setback, subsidies are set to stay in place for the foreseeable future - despite negative investor sentiment for such moves.

And as long as subsidies make the price of fossil fuels less expensive than renewable energy alternatives, consumers have little reason to change consumption habits that rely on coal and oil-based power.

Mr Knaack called Indonesia “a natural (solar) market,” since unlike Europe and the United States it is an island nation where nearly 30 per cent of the population still lacks electricity. Indonesia’s strong exposure to sunlight, known as irradiation, also makes it an attractive market, since a quality solar module could operate long enough to produce strong returns on the initial investment.

For now, however, a lack of infrastructure and high up-front costs pose obstacles to potential investors.

Germany, the world’s leader in solar power generation, has spent around $15 billion to install 7.5 gigawatts of solar power capacity, said Rudolf Rauch, a renewable energy advisor at the German Development Corporation, who acknowledged that the initial outlay for solar generation will require “a lot” of investment.

Standardized purchasing power agreements that would guarantee a competitive price for the power Indonesia’s state utility would buy from solar producers would make such up-front spending worthwhile, he continued. And some private developers say small-scale projects – the type well suited to Indonesia – need not be expensive.

“You can take $10,000 and you have a working solar power system,” said Olaf Fleck, the chief executive of Sunset Solar, based in Germany.

Energy analysts say the way to go is with residential installations in which a company leases the panels to consumers at a lower cost than what they pay for electricity.

Small solar power facilities that generate between five and 10 megawatts of power are also possible, and a few are already being developed in eastern Indonesia by the Japanese International Cooperation Agency though the use of state bank loans.

“That’s a start,” said Edward Gustely, the director of Tusk Advisory, which consults on energy policy in Indonesia. “But it’s largely the Japanese trying to put a footprint out there on a showcase project.”

He says both Japan and China, home to Suntech Power, the world’s biggest producer of solar panels, see Indonesia as a good market in which to sell their excess solar materials.

Within the country, however, there has not been enough attention to transmission or residential instalment, said Gustely. He was referring to the fact that small solar facilities are good at generating power, but have a more difficult time transmitting the stored power to end users, while solar installments for individual households remain low.

“There’s a residential installer in Jakarta and Bali for people who want to have green homes,” said Gustely. “But to really achieve critical mass you have to be doing that on a very large scale and you have to have a degree of the government being a cheerleader for it.”

So far most of the support for renewable energy has gone to geothermal, which accounts for 75,000MW of power out of a total supply of 31 gigawatts, because geothermal makes for an easy transition for oil and gas producers, said Gustely.

“They know how to drill holes, and they want to be able to leverage their skill sets,” he explained.

With energy consumption growing by seven per cent annually, oil prices on the rise and the Indonesian government grappling with how to reduce increasingly burdensome fuel subsidies, the country will need to focus on more than just geothermal development, said analysts.

The eastern islands of this massive archipelago present the biggest opportunities for solar development, said Sjachdirin, the sub-head of engineering and environment at the Ministry of Energy and Mineral Resources.

But there remain some missing links to making it a reality.

For example, the target area in the east has not yet been mapped to determine the best sites for installment. And aside from one project in north Jakarta, the country’s few photovoltaic projects are all publicly owned, largely because of a lack of power purchase agreements.

A government solar power project that aimed to develop an off-grid solar home system based on individual households installing panels on rooftops has also been riddled by a corruption scandal.

Between 2005 and 2009 the Solar Home Systems programme grew from 2,390 units to 77,433 units, said Sjachdirin. The new project was designed to add even more homes to that tally. But according to a recent expose in Tempo Magazine, which alleges corruption within the Energy Ministry starting in 2009, around 35 per cent of those homes are still without electricity.

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